Gag Clauses Chill Consumer Rights

October 08, 2015

Modern-day snake oil peddlers may have found a way to keep consumers quiet about their ineffective products: non-disparagement clauses, also known as gag clauses. These clauses, slipped into the fine print of form contracts, can restrict a consumer’s ability to post negative reviews of a product online. Non-disparagement clauses, which can vary in scope, generally prevent consumers from publicizing negative reviews of a product or company. This restriction includes comments made on online forums like Yelp or even complaints to the Better Business Bureau. When a consumer violates the gag clause, the company often will enact punitive measures, like charging the consumer a financial penalty. As long as companies can get away with including hidden terms like non-disparagement clauses in their contracts, consumers will not be operating in a fair marketplace. Fortunately, the federal government has demonstrated its willingness to step in to protect consumers against non-disparagement clauses and more.

Recently, a non-disparagement clause used in a sales contract for weight loss supplements gained notoriety after the FTC initiated proceedings in federal district court in Florida against manufacturer Roca Labs Inc. for restricting consumers’ speech after the they criticized the supplements online. Roca Labs sells dietary powders marketed as an effective weight loss supplement that can dramatically limit stomach capacity and can even serve as an alternative to gastric by-pass surgery. Unsurprisingly, consumers quickly discovered that the Roca Labs products did not live up to these lofty claims, but when some dissatisfied customers tried to describe their negative impressions of the product to warn future potential buyers, Roca Labs sued or threatened to sue them to enforce the gag clause that had been hidden in the fine print of the sales contract. CBS News described the experience of one such consumer, Jennifer Schiave, whom Roca Labs tried to intimidate into retracting her complaint after she posted about the Roca Labs products on the Better Business Bureau’s website. Like so many other consumers, Schiave was shocked to discover that Roca Labs was retaliating against her because she had absolutely no knowledge of the gag clause prior to hearing from Roca Labs. The FTC’s complaint alleges that Roca Labs attempted to enforce the non-disparagement provision against others customers as well.

While the Roca Labs story may seem like an extreme example of a company with a particularly ineffective product looking to silence naysayers, hidden, abusive contract terms are a pervasive reality for consumers across the country. Forced arbitration agreements, like non-disparagement clauses, are frequently often hidden in the fine print of consumer contracts. Forced arbitration agreements prevent consumers from bringing suit against a company in court, and often prevent consumers from joining together in class action suits as well. The Consumer Financial Protection Bureau’s recent study of forced arbitration clauses provides thorough data about the prevalence and effect of forced arbitration clauses. Another similarity between the non-disparagement clauses and forced arbitration agreements: consumers are overwhelmingly unaware that companies have included these clauses in their contracts.

The ubiquitous presence of non-disparagement clauses and forced arbitration agreements exposes the chilling reality that companies are stealthily using contract provisions to silence wronged and unsatisfied consumers. Be it a lawsuit or a negative online review, outlets that allow consumers to speak up when they have been wronged in a consumer transaction provide a crucial check on corporate power and influence. As in the political realm, speech is a significant part of the marketplace.

Given the bleak outlook, what can consumers do to protect themselves? Vigilance is an easy answer, advocating that consumers read every word of every contract that they sign, but it is wildly impractical as a sustainable solution; consumers neither have the time or understanding of complex legal jargon to read and digest long sales contracts, nor do they always have the option of choosing to do business with a company that omits these manipulative clauses. Nonetheless, meaningful change is achievable. Consumers should call on the federal government to create and enforce laws that can restore balance to the unequal bargaining power that characterizes consumer contracts between individuals and companies. The FTC’s suit against Roca Labs represents one such enforcement action, sending the forceful message that non-disparagement clauses violate federal law. As a further example of the widespread distaste for non-disparagement clauses, Republicans and Democrats in the House and Senate have united to introduce bills designed to eliminate these clauses. The Consumer Review Freedom Act, H.R. 2110 and S. 2044, would invalidate non-disparagement clauses in form contracts, an important step in ensuring consumers stay informed about products and services they are considering purchasing. Just this week, the CFPB announced plans to regulate forced arbitration clauses in financial services contracts by prohibiting clauses that prevent consumers from participating in class action suits in court. The CFPB’s decision to regulate is another action that will help insulate consumers from the unchecked power held by companies in the context of consumer contracts.

Although the prospect of a Yelp-less world may please some businesses, the continued ability to post honest, negative reviews of goods and services in a public forum is an important check on companies that would otherwise get away with selling ineffective products. Non-disparagement clauses and other abusive contract terms, hidden within fine print, deprive consumers of important rights that keep companies in check. The more these clauses find their way into consumer contracts, the less knowledge consumers have, translating to reduced bargaining power. Federal intervention can help restore the balance between consumers and the companies with which they are contracting, and savvy consumers can do their part by supporting it.

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Mollie Rosenzweig, J.D., is a CPR Policy Analyst. She joined CPR in 2015, following a year-long clerkship with Judge Kevin Arthur on the Maryland Court of Special Appeals.